Saving and Money

The 1% New Year’s Solution

 

Want a simple, pain free plan to increase your savings this year? CPA, author and blogger Mike Piper says save 1 percent more. “Increase your savings contributions by 1 percent of your gross income,” suggests Piper.

It might be difficult to imagine how such a small change could make any difference at all, but according to Piper this strategy can work wonders, especially if you are young. I could not agree more.

Saving and Money

Anything you can do to become a consistent saver is going to come back to bless you in many ways in the future. A personal program of consistent savings does more than increase your bank account. It changes your attitude. It quiets your insatiable desires and moves you  away from the edge where it is easy to worry and panic. Money in the bank changes everything.

We Americans are not very good savers. In fact, as a nation, we’re pretty pathetic. As of this writing the personal savings rate in the U.S. is right at 4.6 percent of disposable personal income. To add perspective, the average annual disposable income per person works out to just about $40,000 per year. A 1 percent increase would boost annual savings by just $400 from $1,840 per year to $2,240 annually.

I understand that saving money isn’t easy. That’s because the cost of everything seems to be rising and there are so many things our families need. It takes courage and creativity to stretch the money far enough to last until next payday. I get it. But I also know how easy it is to turn “wants” into “needs.” You know what I’m thinking about and that would be your cable TV bill and data plans for your smartphones. I’m talking about restaurant meals and fancy coffee drinks. Money has a way of leaking out of our lives. If you’re smart you’ll start to notice and do something to plug the leaks.

I don’t know what the future holds but I do know that we are going through particularly difficult economic times. Things are uncertain. That’s why we need to get our heads out of the sand and plan accordingly.

If you knew for certain that exactly six months from today you would lose your household income, that for a season you would have to survive on what you had saved, how would you prepare? You don’t know what is going to happen this year, so why not go ahead and begin to prepare as if it will be the worst case scenario. Then if all is well in six months, you’ll have started a nice nest egg. Get tough, be strong.

One percent. Just one piddly percent more than you are saving now. Don’t think about it. Just do it. Don’t flinch, don’t over think. Just designate a place to save it and then get ‘er done.

I’ll check back next time this year to see how this has worked out for you. I’m smiling because I already know. I can’t wait for you to find out.

ATM
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  1. Happily retired. says:

    Before I retired, I would take half of each raise I received and add that to my 401K plan. I never missed the money and when I retired, I had a very nice “nest egg” that otherwise I wouldn’t have had.

    Reply
  2. auntieree says:

    I know that it is difficult to think of “come up with” an extra 1%, but if you figure the amount from your disposable income and have that amount automatically transferred from your checking account to a savings account, it will be almost painless. You can adjust the amount annually when you get a raise (if you get one).

    Reply
    • kaetra says:

      I was confused too. I’m glad you cleared up the real definition of “disposable income”. It seems like I’ve had “Net Income” and “Disposable Income” definitions mixed up my whole life.
      I’ve always assumed that “disposable income” meant income after taxes AND after all your most basic life-required “needs” were met (like a roof over your head, food to eat, heat, etc.). The word “disposable” implied to me that it was money you could go completely without spending.
      It’s kind of odd that “disposable” really means all your money after taxes. (Further assurance that the only certain things in life are death and taxes. LOL).

      Reply
  3. Guest says:

    Here it is from the U.S. Bureau of Economic Analysis (BEA) for 2012: Per Capita Personal Disposable Income: $38,968. http://www.bea.gov/iTable/iTable.cfm?reqid=70&step=1&isuri=1&acrdn=3#reqid=70&step=30&isuri=1&7028=-1&7040=-1&7083=levels&7031=0&7022=21&7023=0&7024=non-industry&7025=0&7026=00000&7027=2012&7001=421&7029=23&7090=70&7033=-1.

    Reply
  4. Mary Hunt says:

    In response to the discussion below, here it is straight from the U.S. Bureau of Economic Analysis (BEA): Personal Disposable Income Per Capita in the US (2012): $38,968

    Reply
  5. Stan John says:

    Good advice. 1% is such a small amount I shouldn’t miss it and if it comes off the top before I get it. No more excuses from me.

    Reply
  6. momskii says:

    Before I started reading this column, I had the same mindset as lindapries and koko. My income was way less than 40K and my husband just passed away. I did have advance knowledge that he was going as he had been sick for many years with no chance of getting better. I started an online account where the money was hard to use. I had just $5 a week put in that account. I figured if I didn’t see it, I couldn’t spend it. That money(just $300) came in very handy when my husband passed. It is true that Mary’s column is mainly for the people who just spend money like no tomorrow, but for the rest of us, it’s true that just saving change can make a difference in our life

    Reply
  7. Birgit Nicolaisen says:

    What do you mean by “disposable income”? Is that after bills are paid? I certainly don’t have $40,000 just sitting around waiting to be disposed of.

    Reply
    • Ginny says:

      Each of you who have responded must be new to Mary Hunt’s blog and Debtproof Living newsletter.

      By the way, to have $40,000 disposable money simply means that’s your salary to pay bills, groceries, utilities, etc. It is also average. That means it’s in the middle. There are as many below that number as there are above.

      I have been a reader of Mary Hunt’s newsletter since 1992 when we were swimming in debt. She was a lifesaver, and I thank God that He let me find her book, The Financially Confident Woman.

      Good Grief! Is there no common sense out there?

      Ginny

      Reply
      • Birgit Nicolaisen says:

        I am not new to the newsletter or Mary’s ideas. In fact she has changed the way I look at money and I try and share her ideas with anyone who will listen. Just because I asked for clarification does not mean I don’t have common sense. You have no idea what my life is like or anyone else posting here. When I respond to a comment I always try to be supportive and encouraging rather than disparaging or dismissive.

  8. Linda Pries says:

    Just what I was thinking. My TOTAL income is less than 15,000. Mary, I think you need to come down out of the clouds. Please write a realistic column for those who are NOT ridiculously wealthy.

    Reply
    • Amanda Schulze says:

      Mary offers a very reasonable suggestion. If the 1% seems too much, perhaps you could try an extra .5%? If the percentage is throwing you off and making savings seem unrealistic, try saving an extra $1 or $5 or whatever you are comfortable saving each month. The point Mary is making is that even small changes can create big rewards for your finances, and because the changes are small, they are almost unnoticeable.

      Reply
    • Guest says:

      I refuse to accept a life of poverty for anyone I know, love and care about. I don’t know why your income is so low, but you live in a country where you have so many opportunities and choices. I want to help you to lift yourself out of a place of financial difficulty. I total reject your idea that saving 1% of your income is something available only to the wealthy. That is misguided thinking.

      Reply
      • Linda Pries says:

        My total income is so low because I only have soc. sec., a very small annuity and a small long-term disability payment. It takes my S.S. alone to pay a house payment, car payment and insurance. The annuity and disability cover utilities. I already put away $20 a month. I just don’t see how I can manage to add another deposit to that. I have NEVER had enough money to spend freely, in fact, just being able to know that I have enough to stay current on utilities makes me feel like I am almost rich! I have never been foreclosed, had a car repossessed or utilities turned off so I think that I am doing very well as it is.

      • Amanda Schulze says:

        Part of your problem is your car payment. Why would you do that to yourself – subject yourself to a lender, especially for something that goes DOWN in value – when you are on a fixed income? Even if you weren’t on a fixed income, car payments are never a good idea. If I were in your position, I would sell my car immediately and pay cash for a $2k-$3k car that’s good enough to get by.

      • Linda Pries says:

        At this point I have less than a year left to pay on my car. I have had “get-by” cars before and find it’s much better to know when and how much I will be paying than to have auto expenses crop up unexpectedly and for unknown amounts, not to mention that lack of transportation while the car is being repaired. I don’t live in an area where there is an abundance of public transportation. Of course, as I said, I have been able to meet all payments and feel as if I am doing quite well. This car will last me quite a long time yet before things start to go wrong and I will then be able to have some money put aside for repairs. Even when I was working I NEVER had cash to spare, it has ALWAYS been paycheck to paycheck.

      • Amanda Schulze says:

        If you didn’t have a car payment and you had a truly dependable car that you had paid cash for, you would have cash to spare. Instead of paying a bank your car payment, where you’re losing thousands of dollars to interest over the term of the loan, you could be “paying” it into your savings account and earning interest. You have a choice here, but instead of acknowledging an opportunity to improve your financial well-being, you’re content to continue to play the victim card. The fact that you’ve been able to make your payments is all the more reason to not have a car payment. Imagine how much cash you would have if you had paid yourself instead of the bank. Instead, you’re stuck in a cycle of never having enough cash. You’re not doing yourself any favors.

      • Linda Pries says:

        As I said, this car is very nearly paid off, if I sold it I would have to buy a car of far less reliability (in my neighborhood) than I have now. A $2-3,000 car in this area would be at least 10 years old. I do not have the knowledge or ability to work on a car and I would need to buy something else the same day as I would sell my present car (not an easy thing to do). Perhaps you feel that I am being stupid to pay off this car in 10 months, so be it. You have no idea of my present situation, my past situations or my future plans. I daresay you would also feel that I should be living in a rent-subsidized apartment too instead of having a house payment. Oh well. And I am NOT playing the “victim card”, as I have repeatedly said, I feel that I am doing well. I do put money into savings each month, have plenty to eat and maintain a social life too. Could you do as well on so little?

      • Amanda Schulze says:

        It’s great that you’ve nearly paid it off, but that doesn’t negate the fact that you have thrown away thousands of dollars in interest. Given the cash purchase of a decent vehicle, even with general maintenance as is expected with any car, you would have come out far ahead of where you are now. There’s no denying it. I don’t think it’s stupid to pay off a loan you’ve committed to – I think it’s stupid that you committed to it in the first place and then had the audacity to complain: “Woe is me. I have no choice but to live paycheck to paycheck and can only save $20 a month. How dare you suggest I save 1% of my income?” You say you feel you’re doing very well, but at the same time whine that only the wealthy can save money. I doubt you’ll find many people who believe saving $20 a month is doing “very well”. And to answer your question, house payments are not the same as car payments. Cars go DOWN in value. Homes go UP in value. That’s a pretty big difference. One is an investment. One is a terrible waste of money. So yes, I do believe I could as well; better actually, because I wouldn’t throw away money and pretend that doing so is a wise financial decision.

      • Linda Pries says:

        I’m pretty sure that a 10 year old car is going to take a great deal more in upkeep than my car has. Let’s see other than routine maintenance (tires, oil, brakes) I have invested exactly $0 in upkeep. Don’t think I would have gotten that out of a 10 year old car. At the time I bought my car I was working. I don’t mind living paycheck to paycheck, I don’t want or need fancy phones, one television in the house is plenty and Netflix and Hulu Plus are far better than the garbage people pay for with cable and satellite. I don’t need to eat out more than once a month or so and I wouldn’t go on a vacation away from home if you PAID me! In your mind, I may be stupid, that’s okay. In my mind I don’t think much of your values either.

      • Amanda Schulze says:

        For the record, you first used the word stupid; I only continued with your words. I have no problem with your financial choices as long as you don’t complain and insinuate that you’re helpless in your current situation, which is exactly what you were doing when you told Mary to “Please write a realistic column for those who are NOT ridiculously wealthy.” Cry me a river. If you’re actually content to live far below the poverty line the very least you could do is be consistent about it. Deep down, I don’t think you are, otherwise you never would said what you did about being “NOT ridiculously wealthy”.

      • Angry right now says:

        I am totally surprised how harsh some people are. When my husband passes (and it could be soon) I will be living on $1,000.00 per month. We did get a car with a loan that had to be dependable as we make many trips to doctors, hospitals, etc. and I cannot repair a car and obviously he can’t.. I may have to give the car back, I don’t know. I don’t care! I need a reliable car now and yes, against what many of you say, I am thinking of today, more than the future. And we have cable as he’s chair-bound and has nothing to do but watch his westerns, etc. What should I do? Have him stare at the walls until he dies???? I don’t think so. We are doing the best we can like “lindapries” is doing. I use to like Mary’s site because people were encouraging and helpful, no matter what we as imperfect people have done. Hum, Mary made mistakes and now is making big money helping people who have made mistakes also. She’s a little harsh now too. I am stopping my subscription and cancelling getting these emails. I am so disappointed. So you out there who are having a hard time and are in the poverty level as I am, hang in there. Do what you can! I wish the best for you. I am now going to waste some of my money and get a cup of Tension Tamer tea before I go to bed as I am so angry. Shame on me for blowing some money.

      • Mary J says:

        Please don’t give up. I am sorry for what you and your family are going thru but try to save $5.00 a month if you are not able to save per week or every 2 weeks.Mary’s books and Carol Keefe’s “How to Get Everything You Want With The Money You Already Have”. I was able to pay off all my debts and put money aside using the envelop system. I got a envelop and started saving a $1.00 for a house, furniture and a car and saved $1000 for each until I ran4255
        into complications from an operation. I am living on Social Security Disability so I will have to start over again. I hope that you and your husband can continue on each and everyday but try to seat down with your husband and ask him what he wants when he dies. Whether a funeral or to be creamated. If you are looking at creamation, talk with your husband about donating his body to a hospital for science and they then will cremated his remains and give you the ashes vs a funeral that we were charged for $12,000 by the cemetery in Mobile, AL where my sister and I are from. I hope that you both sit down and go over what you need to do and you want. When your husband dies, you are entitled to get $255 from Social Security to help pay for the funeral. Good luck to both of you.

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